Given how critical banking is to the UK’s economy, it is hard not to see this
as an assault by Brussels on our national interests

On Wednesday night, Brussels decided to impose the first ever legal curb on bankers’ bonuses. Boris Johnson described it as “possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire”. The Mayor’s memory might be longer than most, but he is absolutely right – this is a terrible decision for Britain.

No one can deny that the City of London’s bonus culture got out of hand in the past, and it is understandable if politicians are searching for a reasonable corrective. But sometimes what seems just turns out to be neither practical nor fair. This is a prime example.

Limiting the bonuses of EU banks will simply encourage those institutions to raise wages dramatically, leaving them with less freedom to reduce or rescind bonuses when they ought to. Employment might be reduced and complicated new pay structures will be invented as banks try to evade the restrictions. The failure to include an exemption for EU banks operating outside the EU means that their ability to compete against non-EU rivals in New York or Hong Kong will be reduced. The insistence that non-EU banks working within the EU will have to abide by the bonus cap means that those employers will think twice about being located here. Given that the City of London boasts 144,000 banking staff and many more in related jobs, this poses a particular threat to the UK’s economy.

The proposal exposes some of the basic differences between the EU and Britain. While the UK prefers a lightly regulated free market, Europe seems intent on extending the power of big government – even at an eventual cost to its own citizens. Its assault on bankers’ bonuses might superficially make sense in a continent that is traditionally suspicious of the finance sector, especially when it is located in London. But French and German banks will also suffer when they find themselves less able to compete outside the EU.

Moreover, attacking the bankers smacks of blame displacement. Rather than addressing the bad decisions that the eurozone has made in pursuit of recovery, the EU prefers to condemn the “vulture capitalism” of the financial elite. The result will not be a strengthened EU but rather a fractured one, because it will confirm the worst suspicions of Britain’s Eurosceptics. Given how critical banking is to the UK’s economy it is very hard not to interpret this as a direct assault on our national interests. If Brussels wants to drive Britain from the EU – wrecking everyone’s economic recovery at the same time – it is going the right way about it.